Protecting your Inheritance: Lesson’s learned
We recently came across Jeff Lander’s article Divorcing Women: Here’s How to Protect Your Inheritances and Gifts published in Forbes. Jeff provides some valuable insight into the lessons that can be learned for Americans from the divorce of Karen from her estranged husband, Gary before it’s too late for others to protect their inheritances.
The lesson’s provided in Jeff’s article can be applied similarly to Women in Ontario although the law is applied here in a slightly different way. One difference in Ontario is that instead of labeling property as “marital property” or “separate property” the Family Law Act simply looks at all of a party’s property at the date of marriage, and then excludes certain types of property from the final calculation. Jeff’s article is applicable because one of the types of property that can be excluded from the final calculation at the date of marriage is inheritances. This creates a similar result when considering inheritances as when Jeff uses marital vs. separate property.
Just like in America, in Ontario inheritances will only be excluded if they have not been “mixed” into martial property and can be easily traced. This means that like in Jeff’s article there are important financial planning considerations for any women receiving an inheritance in Ontario. The best solution for a party receiving a gift or inheritance is to simply keep the money involved in a separate investment account.
Jeff’s article also makes an interesting distinction between property distribution schemes in different states. In Ontario we use the term “net family property” which is calculated by looking at each party’s property at the date of separation and subtracting any property owned by that party at the date of marriage. The party with a larger net family property must make an “equalization payment” usually in cash but sometimes in property to the other party in order to equalize marital property. This scheme is much more similar to the community property distribution schemes described by Jeff then the equitable distribution schemes and as such it becomes clear why a party would want to exclude their inheritance from the net family property calculation.
Perhaps unsurprisingly, during their relationships most married couples are loath to even consider that they should take steps to protect themselves against their spouses. As a result it still remains a common problem in divorces that inheritances which were meant to be individual gifts ultimately end up as shared marital property.